the comptroller of the currency,
transmitting his Annual Report for the Year 1865.
I have the honor to be, very respectfully, your obedient servant,
Comptroller of the Currency.
Since the last annual report from this office two hundred and eighty-three new banks have been organized, and seven hundred and thirty-one State banks converted into national associations, making the total number organized to November first sixteen hundred and one; of which six hundred and seventy-nine were new banks, and nine hundred and twenty-two were conversions from State banks.
A statement of the respective States and Territories in which each bank is located, the paid-in capital, the currency delivered to each, and the bonds deposited with the Treasurer to secure their notes is herewith submitted; also a detailed statement of the affairs of each bank on the first Monday of October last, with an abstract of their condition on that day, an abstract of the condition of all the banks on the first days of January, April, and July, 1865; together with the names and compensation of the clerks and other employes, and the total expenses of the bureau, for the fiscal year ending June 30, 1865.
One bank has voluntarily gone into liquidation, and has been closed under the provisions of the law, viz:
First National Bank, Columbia, Mo.:
Circulation outstanding ..... $11,900
Circulation redeemed .......... 78,010
Lawful money has been deposited with the Treasurer for the redemption of the outstanding notes of the above-named bank, and the bonds withdrawn.
The First National Bank of Attica, N.Y., has failed, and a receiver has been appointed to close up its affairs. Its outstanding circulation, none of which has been presented for redeemption, is $44,000, secured by $31,500 of six per cent. and $18,500 of five per cent. bonds.
By section 44 of the national currency act any bank incorporated by special law, or banking institution organized under a general law of any State, is permitted, on the performance of certain specified requirements, to be converted into a national association, with the same powers and privileges, and subject to the same duties, responsibilities, and rules as are prescribed for the associations originally organized under that law.
By the seventh section of the act amending the "Act to provide internal revenue to support the government," approved March 3, 1865, the privilege of conversion on the part of State banks was extended, so as to give a preference to those which should apply prior to the first day of July, 1865, over new associations applying for the privileges of the national currency act.
The result has been that nearly all of the State banks have voluntarily changed into national associations, and it is a gratifying fact that this transformation has been accomplished without deranging the business of these institutions, or affecting essentially the volume of bank note circulation. Since the amendment of the act, no national currency has been delivered to a converted State bank, until the circulation issued by it under State laws, had been reduced below the amount to which its capital as a national bank would have entitled it under the law; and as many of the converted banks had a greater amount of State notes in circulation than they were entitled to under the national act, the result has been to diminish rather than increase the volume of bank note circulation.
This restrictive course in reference to State bank circulation, has been the cause of great complaint on the part of many of the banks, more so, perhaps, for the reason that in several States the enabling acts giving consent to the conversion of the State banks to national associations, contain provisions nominally giving the right to converted banks to continue the issue of their State circulation for a limited time, after the conversion is completed.
It is, however, very clear that it is not the spirit or intent of the law to allow any national bank to have a greater circulation than the amount prescribed in the act, and that after a bank becomes a national association it is, as provided in the 44th section of the law, subject to and bound to observe all its provisions. A converted State bank is unquestionably bound to redeem its State circulation and discharge all the obligations of the State institution, while any State enactments granting privileges or imposing restrictions in conflict with or repugnant to the United States laws are necessarily void.
The national currency act permits the conversion of State into national institutions without reference to State laws, and it must be conceded that the laws of the United States are paramount to State enactments. The 23d section of the act prohibits national banks from issuing or circulating as money any notes other than such as are authorized by the provisions of the national currency act. If a national bank converted from a State institution pays out and circulates the notes of the State bank which it is bound to redeem, it certainly issues notes prohibited by the act.
If the rights of converted banks to reissue the notes of the State bank, and also to receive national notes to the amount that their capital entitled them to, were recognized they would have had a double circulation, and the aggregate at this time would probably have been two-fold the amounts of their present issues.
The amount of national bank notes in actual circulation on the 1st day of October last, was .... $171,321,903
The amount of State bank notes in circulation at the same date, as appears by returns to the Commissioner of Internal Revenue, was ...... 78,867,575
Making the bank circulation on the 1st day of October last ..... 250,189,478
The amount of legal-tender notes and fractional currency issued and outstanding on the 1st of October, 1865, was ..... 704,584,658
National bank notes in the hands of banks not yet issued .... 19,525,152
National currency yet to be issued to banks ..... 109,152,945
Making the aggregate amount of legal-tender and bank notes in circulation as authorized to be issued to and by the banks .... 1,083,452,233
From which sum should be deducted, State bank circulation now outstanding that will be retired about as fast as national currency is issued to converted banks ..... $78,867,575
Also the amount of "compound interest notes" converted into 5/20 bonds since the 1st of October last .......... 44,417,329
The amount then left as the available currency of the country is ....... 960,167,326
In order to ascertain the amount of actual active circulation on the 1st day of October last, there should be deducted from the last mentioned sum--
The amount of national currency delivered to banks, and not then in circulation ........ $19,525,152
National circulation not delivered to banks .... 109,152,945
Amount of legal-tender notes held by banks, including $74,261,847 compound intetest notes, .... 193,094,365
Compound interest notes, other than those held by banks, mostly held as investments by insurance and trust companies and savings banks, less say $10,000,000 in actual circulation ......... 121,314,195
Currency in the treasury of the United States ......... 56,236,440
Total ............................... 499,323,097
Which will show the actual circulation to be .................................... 460,844,229
This favorable exhibit of the amount of paper in actual circulation, is owing in a great degree to the accumulation of currency in the hands of the banks, in the absence of the great demands of the government for currency since the close of the war.
As an erroneous impression may prevail as to the aggregate amount of lawful money that banks are required to hold, it is thought proper to state that as the liabilities stood on the first day of October the required sum was $74,261,847 over the amount that banks were permitted to have to their credit, and count as part of the same, in banks acting as redeeming agents. The banks held at that time $14,966,143 in coin, which, deducted from $74,261,847, leaves $59,295,704, the sum that they should have held in legal-tender notes to fulfil the requirements of the law.
It will be seen, therefore, that the sum held, in lawful money, in excess of the required reserve, was $170,045,896.
It cannot be necessary to dilate upon the inevitable consequences which must result from this excessive amount of irredeemable currency, if left uncontrolled by the action of government in respect to the reduction of its own issues, and in enforcing a system of redemption which shall curtail by its operations the power and tendency to expansion. So far as bank issues are concerned it is believed that the most efficient check would be found in its compulsory redemption in the great financial and commercial centres of the country --New York, Boston, or Philadelphia. Under such a system, properly enforced, many institutions established chiefly for the advantage arising from the issue of their own promises, without the expectation of being called upon to redeem them, would find that they had exceeded the requirements of legitimate business, and obtain relief in the abatement of their issues. The circulation thus withdrawn from sections where it is not required, could be dispensed to other portions of the country as yet but partially supplied with banking institutions.
In this manner, also, would a remedy be furnished for the unequal distribution which has resulted from the act of the 3d of March last, giving the preference to the conversion of State banks over applications for new national associations, without reference to the amount of currency which by such conversion has been concentrated in localities where the former institutions were the most numerous.
The national banks already organized embody a capital sufficient to entitle them to receive $309,672,992 of circulation on the deposit of the requisite securities in government bonds. It is not anticipated, however, that more than three hundred millions will be called for by banks now organized, as many of them, located in large cities of the northern States, will not ask for the amount of circulation to which their capital entitles them. Bonds have been deposited to entitle the banks now organized to $244,754,125 of circulation only. In no event will the limit of the act be exceeded.
Whatever may have been the intention of the framers of the federal constitution in respect to the measure of value to be used in the transaction of business during a time of peace, and in the ordinary flow of events, there is ample justification for a departure from a metallic currency and a bank circulation redeemable in specie on demand, in the necessities of the country as superinduced by the unparallelled civil war through which the nation has been called to pass. Now, however, that the emergency which called for this departure from first principles has happily been surmounted, it would seem to be the dictate of sound policy to return as speedily as the financial condition of the government and the business interests of the country will allow to a more normal condition of the currency, so that the pecuniary relations subsisting between ourselves and other nations may be placed upon a more harmonious basis of value.
The evils resulting from an irredeemable currency are too well known to require enumeration. They should be tolerated no longer than absolute necessity requires. The funding, and the consequent retirement of a portion of the inactive circulation shown to be now held in reserve, and liable to be called out as increased speculations and additional enhancement of prices may demand, and the consequent reduction of the same to the amount required by the actual necessities of business would seem to constitute one of the first steps towards that sound condition of finance under which alone a permanent prosperity can be secured. By such a course only can we place the manufacturing and producing interests of the country in a position to compete successfully with other nations, prevent an excess of imports over exports, and thus prevent a drain upon our resources, which must otherwise postpone to an indefinite period the resumption of specie payments.
Under the present inflation of prices the cost of labor and of all the elements entering into the production of staple commodities, whether in agriculture, mechanics, or manufactures, is such as to invite the direct competition of all other countries in our own markets. It is this which makes our market the best to sell in and the worst to buy in on the part of foreigners, and which, in the consequent absence of an adequate export demand, must eventuate in the denuding us of the precious metals and the creation of a debt abroad that will be a greater drain upon our resources than our present national debt.
By a gold valuation of our imports and exports, the balance that has accrued against this country during the four years previous to the 30th day of June last, including the interest on American securities held abroad purchased within that time, and also taking into due consideration the difference between the standard of our own and that of foreign gold, (nine and three-eighths per cent.,) has been $308,000,000 of dollars.
By reason of the probable falling off in the export of coin, and the increased amount of interest to be paid abroad, it is estimated that the accruing balance during the present fiscal year will amount to $120,000,000, making a total for five years of $428,000,000.
Our only resource to pay this gold balance against us has been and still is the sale of our securities abroad. The amount required, if sold at an average discount of forty per cent., will be $713,000,000, and the annual interest at six per cent, will be $42,780,000. The discount of forty per cent. will amount to $285,200,000; every dollar of which will be an entire loss to the country.
The almost exclusive use and demand for gold now is for the payment of custom duties to be paid out again for the interest on the public debt; this is followed by the sale of the surplus beyond the amount required to pay the interest, which surplus again accumulates to go repeatedly through the same process. If one-half of the differences between our imports and exports were paid in gold as they occur, the price of gold and foreign exchange would have long since reached a rate sufficiently high to have materially checked our imports and increased in a corresponding ratio our exports. The price of gold is now governed by the demand for the purposes stated, and the foreign balances against us are paid as before shown, by the sale abroad of government and other securities at a discount of about forty per cent.; thus instead of paying, creating an additional indebtedness to the extent of the difference between the amount received for our securities and their par value, every fraction of which we shall ultimately have to pay in gold, in addition to the interest. It may be said that our exports will be increased by the addition of southern productions. This will undoubtedly be so; but to no greater extent than our imports will increase. The south will need more than all the goods her surplus crops will purchase, and if we cannot compete in the open market with other nations, our relative position in reference to imports and exports will not be improved.
In view of our position, prudential considerations would seem to point to such an adjustment of the tariff, intermediate to the resumption of specie payments, as to discourage inordinate importations; this can be done by increasing the rate of duties just in proportion as the price of gold and foreign exchange may recede, thus keeping up the cost of importations as high as they now are, including the present rate of foreign exchange. This could be followed by a graduated reduction of such increase, say ten per cent., at the expiration of each six months, until brought down to the original rate. Imports would be held back in view of such reduction, and there would be no overwhelming crash resulting from a sudden fall of prices, but business would adjust itself to the present and prospective condition in which it would be placed under the legislation indicated. In the mean time, by a steady reduction of the volume of irredeemable currency and consequent reduction of prices, we would be able once more to place our manufactured and agricultural productions on a footing that would enable them to enter into successful competition with those of other nations in the markets of the world.
As the first step to be taken towards a reduction of the government issues used as currency, sound policy would indicate the conversion of all the interest-bearing legal-tender notes into 5-20 six per cent, bonds. It is believed that the slight contraction caused by such conversion would be scarcely perceptible, more especially at this time, as it is not probable that more than five per cent, of the whole issue is now in active circulation. It would be simply exchanging one security held as an investment for another.
The national banks alone, as shown by their reports, held on the first of October last $193,094,365 in legal-tender notes, or $22,772,462 --[slight correction: this number is 21,772,462: 193,094,365 minus 171,321,903 is 21,772,462] more than the whole amount of their national bank circulation at that time; they also held in notes of other banks $16,247,241, and of their own notes not in circulation $19,526,152, making a total of unemployed circulation in the hands of national banks $228,966,758, which is several millions more than the entire paper circulation of the country on the first of January, 1861, or at any previous period.
In view of the urgent demand that will undoubtedly be made for an increase of the national bank circulation, and as a gentle mode of further reducing the volume of legal-tender notes, it is suggested that the national currency act be so amended as to allow an increase of the limit to four hundred millions of dollars, on conditions only, that all the banks be required to redeem their notes in New York, Boston, or Philadelphia; and also that an issue of six per cent. 5-20 bonds be authorized to the amount that it will require to secure the additional circulation under the provisions of the act, which bonds the banks, when organized, shall purchase as each may require of the Secretary of the Treasury at such fair rate as he may from time to time prescribe, but not less than their par value, and pay for the same in the United States legal-tender notes, and all notes so received shall be cancelled and destroyed. The bonds so issued would not affect the price or demand for other bonds, as they would be held as security for the circulation, and only offered in market in the event of the failure or closing of a bank.
With the requirement to redeem at the central and accessible points mentioned, there would be but little danger of bank issues exceeding the limits prescribed by the demands of legitimate business. Under the action indicated, it is believed that the balance of trade with other nations would within a reasonable time be again turned in favor of this country; whenever that point is reached, with the perfect confidence which would ensue in the convertibility of legal-tender notes and the stability of sound bank circulation, the return to and maintenance of specie payments would be rendered comparatively easy, and the demand for gold be confined to the healthful and legitimate adjustment of balances with foreign countries.
Although of comparatively recent origin, and yet in the infancy of its development, the national banking system has become thoroughly interwoven with all the business and interests of the country. Not only the stockholders in the national banks, but every member of the community has an immediate interest in the stability of a currency which forms the medium of exchange and value, not in isolated sections of the country between particular classes, but throughout the length and breadth of the land, and by every citizen of the republic. And this system, so ramified and so essential to the prosperity of all classes, is based upon the national faith and credit as its chief comer-stone, and can only exist as that credit is maintained intact.
Nobly have our citizens battled for the preservation of our institutions; freely have they poured out their blood and treasures to sustain the government in its contest with ruthless treason, and now that success has crowned their exertions and sacrifices, the maintenance of the national honor, through an unsullied public credit, becomes a no less imperative and solemn duty; nor can it be doubted that all just measures calculated to sustain the faith and integrity of the government will find a ready response from the patriotic masses.
The resources of the country are great beyond enumeration, the development of wealth [is] rapid beyond precedent, and it requires only a judicious application of means to the end proposed to enable the government not only to meet all its pecuniary obligations with entire promptitude, but without imposing exactions that shall be unduly burdensome or give just cause of complaint to the people.
It is believed that from a few sources a revenue can be raised sufficient to meet the interest on the public debt, pay the ordinary expenses of government, and contribute thirty millions of dollars annually to a sinking fund that will pay the national debt in thirty-two years and a half.
The tariff can be so adjusted as to produce one hundred and twenty millions of dollars; one hundred millions can be raised on whiskey, malt liquors, and domestic wines; fifteen millions on tobacco; one hundred and twenty-five millions on cotton; fifteen millions from stamps; from licenses twenty millions, and from the premium on the surplus of gold, after paying interest on bonds, ten millions, making, in the aggregate, four hundred and five millions of dollars, a sum probably one hundred millions in excess of the amount that will be required under an economical administration of the government, leaving a large margin on the above estimate for reduction.
The estimates, however, of the revenue derivable from the several sources indicated are not the result of loose conjecture, but each is founded upon a careful inquiry in reference to past productions and revenue under the existing law.
It is estimated that the cotton crop the next year will amount to between two and a half and three millions of bales; a tax of ten cents per pound on two and a half millions will produce one hundred and twenty-five millions of dollars. It is reasonable to suppose that the annnal crop of cotton, after two or three years, will equal in amount the average of the crop for a few years previous to 1861, which was about four and a half millions of bales. A tax of eight cents per pound on that quantity would produce one hundred and eighty millions of dollars, a sum more than sufficient to pay the interest on the public debt after the entire amount is funded.
The license and stamp duties could be dispensed with after the next fiscal year, and it is to be hoped that after that period no more income will be derived from premium on gold.
Three-fourths of the crops of cotton and tobacco are exported; that proportion therefore of the tax on those articles would be paid by foreign countries, and to that extent contribute to the liquidation of the public debt and relief of our own people. A tax on cotton of eight or ten cents per pound would neither diminish the domestic production or foreign demand for that staple. Our means of production, natural and applied, are such as to enable us to furnish the article at a less price, including the tax proposed, than any other country. Even at half the price which this product now commands in New York and Liverpool it can be grown and sold at a large profit, including the proposed tax, in its cost. Nor would the imposition of a tax on the staple production of the southern States prove injurious to that section of the Union. It will of necessity be a large purchaser of northern manufactures, and if by the proposed measure the north and south be relieved almost entirely from other taxation for government purposes, as they would be if cotton is taxed to the extent proposed, their purchases would be made at a correspondingly less price, and both north and south derive a benefit from the operation.
By thus restricting the subject of revenue to a few articles of general production, the cost of collection would be greatly reduced by the discharge of a whole army of assessors, collectors, &c., to the manifest advantage of the public treasury; nor would the least of the benefits to result from this action be found in the fact that such an adjustment of the system of taxation would leave no ground for public complaint, and consequently preclude dishonest and disloyal politicians from uniting with the enemies of the Union in assailing the public credit and repudiating the national obligations.
There is no question which more vitally concerns the national banking system than the power of the States to tax the government securities which form the invested capital of the banks organized under that system. Not only have their investments been made upon the solemn pledge of the national faith, held out to corporations and individuals, that their stocks should be "free from taxation by or under State authority but the option of refraining from such investment was denied to the national banks, as it was by law made a fundamental condition to their existence that one-third of their capital should at all times be held in the form of national securities by the Treasurer of the United States; and, in addition, every dollar of their circulating notes must be secured by a like deposit. Hence, while individuals might have refrained at their pleasure from placing confidence in the good faith of the government, these institutions were deprived of such liberty of action; and now, while the right of individuals to immunity from taxation on government stocks is generally conceded, the like privilege is sought to be withdrawn from the national banks by their taxation for State, municipal, and local expenses. The constitutional ægis, which the Supreme Court of the United States has hitherto extended over the national securities, no matter by whom or for what purpose held, is now sought to be wrested from its hands upon the theory of State jurisdiction; a flagrant violation of the contract entered into with the public creditors under the clearest enactments of law, and the most binding obligations of public faith. It is conceded for the most part by the advocates of State taxation, that the United States stocks in the hands of individuals cannot be assessed for State and municipal purposes. But a discrimination against the stocks held by banks is sought to be established, on the ground that a tax imposed upon the shares in a bank is not a tax upon the securities represented by those shares. That the position assumed by those who favor this hypothesis will be found, upon critical examination, to be fallacious can scarcely admit of a doubt; that the discrimination in favor of one class of creditors and against another, both having complied with the same conditions, is grossly unjust, must be obvious to all. That exemption from State taxation was intended to apply to the stock issued, no matter in whose hands it might be found, cannot be questioned. No exception was made in favor of individuals; no discrimination was attempted against banks. If the shares of a bank whose capital is invested in United States stocks be taxable, to whose benefit does the exemption from taxation guaranteed to those stocks inure ? Does the principle of immunity pledged by Congress become inoperative because an association has loaned to the government the money for which it holds those obligations ? Surely, the exemption belongs to some person, and to whom can it be assigned but to the respective stockholders, whose scrip simply represents the proportionate share which each has contributed to the purchase of the government securities. Upon the theory propounded, an individual who purchases one hundred thousand dollars of government stock for a specific purpose, may plead, and receive, the exemption from State taxation which the act of Congress pledges; but if four persons purchase the like amount for a similar purpose, and each receives a certificate of the amount he has paid towards the gross investment, they lose all benefit of the immunity attached to the securities in hand. The injustice, if not the absurdity, of such discrimination must be sufficiently obvious.
Nor will the impropriety of the proposed taxation of national banks be less apparent, when it is borne in mind that they are already taxed by the general government to a greater extent than any other corporations or class of business. The law of their creation requires them to perform certain duties, and authorizes them to exercise certain privileges, yet for this they must pay a license. It imposes, also, a tax of one-half of one per cent. on their deposits, one per cent. on their circulation, one per cent. on their capital beyond the amount invested in government securities, and five per cent. on their income or earnings. All this is paid from the ordinary earnings of a bank, and reduces its profits to the extent of the taxes paid, whereas all other corporations, manufacturers, &c., are permitted to increase their rates and charges to a sum more than adequate to cover the amount of taxes paid, thus preserving their profits intact, and catsing their burdens upon the public, in the capacity of consumers, travellers, &c.
It is not through palpable injustice to vested interests, and by a disgraceful violation of public faith, that the subject of State taxation should be reached. If public policy demands a contribution to State and local expenses at the hands of these institutions, there is a mode of attainment not distant which can be reached without a breach of national honor. Nearly three-fourths of the public debt is either not funded, or matures at the option of the government, within a short period, and almost the whole amount within the next eight years. It is within the power of the government at such time, without violence to its engagements, to try the experiment of issuing bonds subject to State taxation, or of borrowing at a less rate of interest than is now paid, thus extinguishing its present obligations to its creditors. But every dictate of expediency and justice, its character and credit at home and abroad, demand that Congress and the highest judicial tribunal of the nation shall frown upon all attempts to override the constitutional functions indispensable to the preservation of the credit and stability of the government.
But as neither public policy nor constitutional right can at present allow the taxation of national banks for State and local purposes, it would be equitable that these institutions should pay, say one per cent., on their capital, (irrespective of the amount invested in public stocks,) in lieu of all present taxation for revenue purposes, and one-half of one per cent. on their circulation as an indemnity to the government for the expense incurred in furnishing the banks with circulating notes, and meeting the expenditures incidental to the administration of this bureau. Perhaps a preferable method in relation to the expenses thus incurred for circulation and supervision would be found in waiving the tax on circulation, and meeting the expenditures required by such direct assessment on the banks as should be equitable.
There are some amendments to the national currency act suggested by the experience of its practical workings, which, if adopted, would prove of great utility, the most important of which has already been alluded to-- requiring banks to redeem their issues at par in either of the cities of New York, Boston, or Philadelphia, as the only certain method of securing for national bank notes a uniform par value in every section of the country, and prevent an excess of issues beyond the legitimate demands of business.
A penalty should be imposed upon banks for issuing notes with the engraved and printed signatures of the officers. The greatest protection against counterfeiting is found in the written signatures of those through whom the bills are uttered. The fact that they are written and not printed renders it incumbent on the counterfeiter to attempt an imitation through the same instrumentality on each note. He may make a fac simile of the signature once, but in the very next attempt make such a variation as to disclose the spurious character of the note. But a printed signature being once correctly imitated, the same result is produced at each revolution of the press with mechanical accuracy. Just as safely might the merchant send his notes to an engraver to have his signature and those of his indorsers stamped thereon, as for banks to have their notes executed through this process. Unless all possible guards which ingenuity can devise be thrown around the currency, it will soon be difficult to distinguish the spurious from the genuine issue, and banks will be as likely to redeem the former as those of their own promulgation.
By the first section of the national currency act, the bureau under which its operations were to be carried into effect, is made an adjunct of the Treasury Department, and of course located at Washington. During the incipiency of the measure there were many reasons rendering contiguity to the treasury desirable and proper; but now that the system has become operative, and what was theory at the first has been reduced to practice, there are many reasons which render it expedient that the operations of the currency bureau should be transferred to the great financial and business emporium of the country, the city of New York. Not only would the convenience of those concerned in the business of banking be promoted by the change of location, but a great saving in expense would thus be effected. Nearly two hundred thousand dollars per annum in express charges alone would be saved to the government and the banks by the change of location proposed; while the risk, loss of time, and personal expenses, which would thus be obviated, are large in the extreme. When the circulation now in use by the banks shall have become worn, and require renewal by exchange of old for new, the inconvenience, loss of interest, and expense, will be increased to a manifold extent.
The government already owns the buildings in New York which a transfer of the office would require for its accommodation, that are now rented for about the sum the Treasury Department is paying for an equal amount of room outside of the treasury building that would be vacated by the removal of the bureau. I am satisfied, therefore, that both the interests of the government, the public and the banks would be subserved by a transfer of the bureau to New York at an early day.
With a system of redemption properly enforced, the banks located out of the cities named as redeeming points, should be relieved from the obligation to keep a reserve equal to fifteen per cent. of their circulation and deposits constantly on hand. It would be a hardship to require banks to be prepared to redeem both at home and at one of the points indicated, and in addition to keep an idle reserve of fifteen per cent. against contingencies.
There is no real strength or safety derived from the provision as it exists. When a bank fails, neither money nor reserve in any shape would be found on hand, and the sooner those that are improperly conducted or are organized for other than a legitimate banking business are closed up, the better will it be for the system and the public.
By the 32d section of the act it is provided "that every association formed or existing under the provisions of this act shall take and receive at par, for any debt or liability to said association, any and all notes or bills issued by any association existing under and by virtue of this act."
The provision is anomalous in its character. To compel a bank to respond to the demands of its creditors in lawful money, and yet compel it to receive from its debtors such currency as they may choose to offer, does not seem to be warranted by equity or sound policy. It is even questioned whether a national bank is compelled to redeem its circulation at all, in lawful money, if presented by an association organized under the same act, as any "debt or liability" may be discharged by its own notes or notes of other national banks, when that "debt or liability belongs to any other association" existing under and by virtue of "the national currency act." The intention and scope of the statute is evidently against such a construction of its provisions, but all ambiguity in reference to it should be removed. All the banks should be required to redeem their notes and pay their balances in lawful money, as well to each other as to the public.
Whatever hostilities the national banking system may have encountered in its first inception, it is no longer denied that it has entrenched itself strongly in the feelings as it has commended itself to the convenience and interests of the whole people. Coming into conflict with local prejudices, and assumed to run counter to private interests, it was natural that its practical operations should have been regarded with jealous suspicions. It is not among the least of the triumphs of the system, that in a period of war, amid monetary disturbances, caused by the gigantic requirements of the government, it has stood the test of practical experiment in the most satisfactory manner, vindicating the partialities of its friends, and overcoming by its beneficial effects the hostilities of its most determined enemies.
In a country already celebrated for its commercial, manufacturing, and agricultural activity, no want could be more sensibly felt than that of a homogeneous currency, of equal value at the circumference, as well as at the commercial centres of our extended country. This could not be obtained under the restricted operations of State laws, nor could it be furnished by institutions necessarily circumscribed in their fields of operation, diverse in the extent and character of their liabilities to the public, and without a recognized basis of credit adequate to insure the public confidence in sections remote from the locality where such liabilities were payable. It is not denied that the State banks have been of great, if not indispensable service in the development of the resources of the country; it is not designed to underrate their usefulness, to question their patriotism, or assail the integrity of the banking institutions of the States; but as in all enlightened communities there will be progress and improvement, it cannot be regarded as invidious to claim for the national banking system a superiority over the more limited system of State institutions, inasmuch as it furnishes a safe and convenient paper circulation, based upon the national credit, and which thus far has been, and with a slight amendment to the act may continue to be, of uniform value throughout the length and breadth of the land.
Not only are the regulations by which the national banks are governed of equal applicability; not only are they based upon actual capital and individual responsibility, carefully enforced; but underlying these safeguards there is a foundation of unparalleled security in the government bonds which they are required to hold. A system thus anchored, in which the whole community has a common interest, cannot fail to subserve the highest object of its creation, nor cease to be regarded with favor by an intelligent people.
While, in conclusion, it is allowed me to congratulate Congress and the country on the popularity which the national banking system has achieved, I would add the hope that these institutions may never become subject to the schemes and caprices of political parties, but that in them and through them the public faith and credit may be upheld, and the prosperity of the countiy greatly promoted.
Comptroller of the Currency.